The Pebble and the Avalanche

Putting Skills to Good Work

I've just returned from a trip to Japan. While I was there, I had the opportunity to visit Kyoto Kakagu, a company that provide an excellent example of how to put skills to good use — and a nice contrast to the failure of Polaroid management's inability to save their company.

First, some background. If archaeologists dig up an old pot that's shattered, and they want to put it into a museum, someone has to reconstruct the pot and supply the missing pieces. When a museum wants to display model of an ancient building, someone has to create that model. And if a museum wants an exact replica of a valuable piece of sculpture, clay pot, fossil, meteorite, or document, someone needs to do that work. That was Kyoto Kakagu's business for many years. It's a fascinating spot to visit; I was quite jealous to see the workers handling clay pottery that was thousands of years old.

Here's the part that's relevant to this blog. A few years back, a customer approached Kyoto Kakagu with a request: could they please make a model of a human body for use in a medical school? Management had the foresight to realize that their skills in creating models for archeology could apply to medical models, and today Kyoto Kakagu supplies a wide variety of medical models. Small models of babies — ones with pulses and other medical responses — can train nurses how to correctly hold and care for infants. A human chest can be placed into a X-ray machine to emulate a patient with cancer in their lungs. Their latest full-size human model lets you listen to the heart, take blood pressure, check the eyes for proper pupil response, and record an EKG.

The lesson here is straightforward: your company's expertise may apply to other areas. In the book I discussed Polaroid, which despite a desperate need to find some way to keep your company relevant failed to find a modern use for their corporate skills as digital photography made the instant camera obsolete. Disaggregating your corporate skills from your current corporate business can open new horizons.

Topics:  · business · manufacturing · technology

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"High Barriers to Entry and High Barriers to Exit"

Millions upon millions of ordinary Americans own real estate — homes, apartments, and the like — and thousands of independent builders and contractors create these buildings for them to purchase. Even more Americans own automobiles, but for some curious reason only a handful of companies build automobiles.

Rick Wagoner, the CEO of General Motors, discussed the problem of overcapacity in the automobile industry:

"It''s hard to take capacity out. It''s expensive. There are frequent union issues. There are government regulations," he said. "The auto industry has high barriers to entry and high barriers to exit."

Allow me to re-state this idea. The large automobile manufacturers, along with the labor unions, promoted intervention by government regulatory agencies to create high barriers to entry; not surprisingly the government also created high barriers to exit. The high barriers to entry prevent competition, encourage monopolies, and stifle creativity — all to the benefit of the established companies. But what goes around comes around; when competition finally arrived, from "foreign" manufacturers and non-union labor, the introduction of creative new ideas have succeeded in pushing domestic monopolies to the brink of extinction.

Topics:  · business · government · manufacturing · transportation

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Good Coffee, No Jitters

I can't stand the taste of coffee but I love this invention: a portable, passive device to remove the caffeine from coffee, one cup at a time.

This is a perfect act of disaggregation. Until now, removing caffeine had to take place in a factory at the time of manufacture. This device removes the constraints of space and time; you can decaffeinate coffee at any time and at any place. Furthermore, the device breaks the mechanical constraints: prior to this, only specific blends were available decaffeinated; this device makes any blend available decaffeinated. Decaffeination becomes a component!

By all measures, this is a revolutionary innovation that provides convenience and flexibility, and ought to become quite popular. In practice, let's hope that the DeCaf Company, creators of the invention, will successfully bring their innovation to market, because they certainly deserve to succeed.

Topics:  · manufacturing

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Airplanes into Beer Cans

Boeing and Airbus follow two very different business models: Boeing is a private company, while Airbus is propped up by the European governments as an alternative to Boeing and other US suppliers. The result is, apparently, two very different approaches to business.

Today's Wall Street Journal [subscription required] reports on how Boeing and Airbus are tackling the issue of recycling old airplanes (and I thank them for the "beer cans" headline idea). Thousands of old airplanes are ready to be scrapped and replaced with newer models — but what happens to the old airplanes? Boeing is working with a set of outside companies, and has formed the "Aircraft Fleet Recycling Association" (which for some reason has no web page as yet). In other words, as a private company, Boeing has decided to allow separate companies to specialize in the recycling business, and furthermore to encourage an industry association to pool knowledge and perhaps set industry standards. Boeing understands that by disaggregating the recycling business from its core business, it will gain the usual benefits of disaggregation; in this case: specialization, creativity, and cost reduction.

Airbus, as expected from a government-supported company, is more used to consolidation and control. They've taken their recycling business in-house, they're accepting government financing to support recycling, and they're leading what appears to be an official government recycling project.

The differences between the Boeing and Airbus approaches to recycling will make a nice MBA thesis one day, but I bet I know which one will produce lower costs and more creative solutions.

Topics:  · business · manufacturing

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CEO of Alcoa: World Aluminum Industry Saved by Disaggregation

In an article titled "World aluminum industry saved by disaggregation: Alcoa CEO," MarketWatch quotes the CEO of Alcoa as saying that the aluminum industry would have gone the way of the steel industry (i.e., downhill to bankruptcy) if it weren't for the aluminum industry's disaggregation of its commodity business from the business of fabrication:

Belda said as companies separated primary aluminum from flat rolled products, transparency and price clarity followed.

"This allowed Alcoa to properly measure the profitability of each of its business sectors," Belda said. "It instilled a pricing discipline and made the aluminum industry an even more profitable business."

What's also interesting is that the aluminum industry fought for a dozen years against disaggregation — against commodity trading of aluminum:

"It was rumored, though never anything official, that in the early days of the aluminum contract, anyone who entered into a LME [London Metals Exchange]-based contract would be summarily dismissed," Belda joked. He said the aluminum industry in general took about 12 years to accept the LME contract as its official pricing method.

"By the 1990s, the aluminum industry had completely embraced the contract and had even started looking at new products, such as automotive alloys and high purity alloys," Belda said.

"It gave liquidity, price transparency, the capacity for management of inventory, and financing," he added.

The steel industry attempted to resist progress and paid the price.

Topics:  · business · manufacturing

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The Automobile and Its Factory

Today's Wall Street Journal has a page-one article about Chrylser and its effort to disaggregate factories from automobiles.

Chrysler engineers discovered that the PT Cruiser was an inch too tall to fit through the [Belvidere, Illinois'] plant's paint shop. Chrysler, which was losing money at the time, ended up spending $300 million to expand the assembly line at the PT Cruiser plant in Toluca, Mexico.

Determined not to make such a mistake again, Chrysler rethought how it assembles cars, looking at everything from the order in which door parts are welded together to whether it's cheaper to install windshields manually or by machine. The result is a new, flexible assembly system that Chrysler is betting can transform the company's economics. Its central feature is the ability to make more than one type of vehicle at a plant.

I'd bet on Chrysler; it's the right kind of innovation. Now, if only the PT Cruiser wasn't so ugly..

Topics:  · manufacturing

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Home Entertainment Vendors Learn Value of Cooperation

The knock-down, drag-out fights between companies that want to dominate your living room may be drawing to a close. An article in ScreenPlays Magazine describes how companies are starting to learn the benefits of cooperation. As a result, consumers might actually receive some of the benefits they've been promised as part of the digital revolution.

Of course, if you've read the book, you don't need a recap of what's been happening so far in this battle — it's the same battle that was fought back in the 1850's over machine screw threads. Manufacturers started out by pushing their own "standards," which resulted in consumers being wary about purchasing anything. Now the manufacturers, except for Microsoft if I'm reading the article correctly, have come to understand that they must cooperate to grow the market.

Let's hope that ScreenPlays is correct. So far even the simplest cooperation hasn't been achieved: the next generation of DVDs is still on hold as the HD-DVD and Blu-ray DVD camps continue their pointless battle.

Topics:  · design · manufacturing · standards

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A Washing Machine for People and Other Innovations

Sanyo Corporation manufactures a $45,000 washing machine for people, complete with a rinse cycle.

Today's Wall Street Journal has a page-one article about new products from Japanese corporations aimed at the elderly [subscription required]. I was particularly struck by Toyota's innovations; Toyota has looked deep into their list of automobile-related technology to discover new applications. They've created wheelchairs, automated kitchen cabinets, and improved mattresses — all based on automotive technology. Toyota is a case study in how to recycle old technology to innovate new products.

Topics:  · manufacturing · technology

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